The Right to Cultivate (Hak Guna Usaha or “HGU”) is one of the land rights that plays an important role in business activities, particularly in the agricultural, plantation, livestock, and fisheries sectors. In conducting such activities, companies often make substantial investments on HGU land, including buildings, production facilities, supporting infrastructure, business-related equipment, and crops.
Accordingly, when the term of an HGU is approaching its expiration, the issue is not merely whether the company may continue to use the land. The company must also understand the legal status of assets located on the land if the HGU is not extended, renewed, or ultimately re-granted.
To address this issue, it is necessary to distinguish between the status of the land, the stages involved in the continuation of the HGU, and the legal consequences for assets when the HGU is not re-granted.
- What Happens When the Term of an HGU Expires?
Article 28 paragraph (1) of Law Number 5 of 1960 concerning Basic Agrarian Principles (“UUPA”) defines HGU as the right to cultivate land directly controlled by the State for a specified period for agricultural, fisheries, or livestock enterprises.
The regulation of HGU is further elaborated under Government Regulation Number 18 of 2021 concerning Management Rights, Land Rights, Strata Titles, and Land Registration (“GR 18/2021”). Pursuant to Article 21 of GR 18/2021, land that may be granted an HGU includes State Land (Tanah Negara) and Management Rights land (Tanah Hak Pengelolaan or “HPL”).
An HGU is also not granted for an unlimited period. Pursuant to Article 22 paragraph (1) of GR 18/2021, an HGU is granted for a maximum period of 35 years, may be extended for a maximum of 25 years, and may be renewed for a maximum of 35 years. Upon expiration of the grant, extension, and renewal periods, the HGU land reverts to land directly controlled by the State or to HPL land.
However, the expiration of an HGU term should be distinguished from the expiration of the HGU cycle as a whole. An extension constitutes an addition to the term of the right without changing the terms and conditions of the grant, whereas a renewal constitutes an addition to the term after the right has expired or before the extension period expires. An application for renewal of an HGU may be submitted no later than two years after the expiration of the HGU term, as stipulated in Article 26 paragraph (2) of GR 18/2021.
An extension or renewal is not granted automatically. Article 25 of GR 18/2021 requires, among other things, that the land continues to be properly cultivated and utilized in accordance with the purpose for which the right was granted, that the holder of the right continues to satisfy the applicable requirements, that the use of the land is consistent with the applicable spatial plan, and that the land is not being used or planned for public purposes. For an HGU over HPL, the consent of the HPL holder is also required.
- Does the Former HGU Holder Automatically Re-acquire the Land?
No. Upon the expiration of one complete cycle consisting of the grant, extension, and renewal of an HGU, Article 22 paragraph (2) of GR 18/2021 provides that the HGU land reverts to land directly controlled by the State or to HPL land.
Specifically with respect to State Land, Article 22 paragraph (3) of GR 18/2021 allows a former HGU holder to receive priority in the reorganization of the use, utilization, and ownership of the land.
However, such priority does not constitute a guarantee that the HGU will necessarily be re-granted. The assessment takes into consideration, among other things, whether the land continues to be properly cultivated and utilized, whether the requirements for the granting of the right have been fulfilled, whether the former holder continues to satisfy the applicable requirements, compliance with the applicable spatial plan, public interest, natural resources and environmental considerations, as well as the condition of the land and the surrounding community.
This mechanism is further regulated under Article 80 of Regulation of the Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Number 18 of 2021 concerning Procedures for the Determination of Management Rights and Land Rights (“MATR/BPN Regulation 18/2021”).
Within five years prior to the expiration of one complete HGU cycle, the Head of the Land Office conducts an assessment of the use, utilization, and ownership of the land. Based on the results of such assessment, the Minister may decide whether to re-grant the HGU, either in whole or in part. In other words, a company should not wait until the entire HGU cycle has expired before assessing the continued status of its land rights.
- What Happens to the Assets if the HGU Is Not Re-granted?
This is the key issue for companies. Article 81 paragraph (2) of MATR/BPN Regulation 18/2021 specifically regulates circumstances where an HGU is not re-granted to the former holder, either in whole or in part.
Where the HGU is located on State Land, the buildings, objects, and crops located on the HGU land are directly controlled by the State. Meanwhile, where the HGU is located on HPL land, the status of the buildings, objects, and crops follows the land utilization agreement with the HPL holder.
This provision must be understood carefully. Article 81 uses the term “directly controlled by the State” and does not provide that all company assets automatically “become the property of the State.” Nevertheless, a company should also not assume that such buildings, objects, and crops automatically remain under its control after the HGU is not re-granted.
It is therefore necessary to distinguish between the status of the land and the legal position of assets located on the land. Article 32 of GR 18/2021 regulates the consequences of the extinguishment of an HGU in relation to the land: an HGU over State Land results in the land becoming State Land, while an HGU over HPL land results in the land returning to the control of the HPL holder. Meanwhile, Article 81 of MATR/BPN Regulation 18/2021 specifically regulates buildings, objects, and crops where the HGU is not re-granted.
Accordingly, companies need to clearly identify all assets located on each HGU parcel. This is particularly important because an HGU may be re-granted or not re-granted only with respect to part of the relevant area. Therefore, the location of buildings, production facilities, infrastructure, and crops may determine the legal risks faced by the company.
For HGU over HPL land, the land utilization agreement is particularly important, as such agreement serves as the basis for determining the legal status of buildings, objects, and crops if the HGU is not re-granted.
- What Should Companies Prepare?
The expiration of an HGU should be treated as part of the company’s legal risk management and asset protection measures, rather than merely as an administrative matter concerning the land certificate.
Well before the HGU term expires, a company should:
- review the validity period and stage of each HGU, including whether it is still at the grant, extension, or renewal stage, or is approaching the stage of re-granting;
- ensure that all obligations and requirements applicable to the HGU holder have been fulfilled;
- determine whether the HGU is located on State Land or HPL land;
- conduct an inventory of buildings, infrastructure, objects, and crops located on each HGU parcel; and
- for HGU over HPL land, review the land utilization agreement, particularly provisions concerning the treatment and status of assets upon expiration of the HGU.
The inventory should be conducted based on the location of the assets on each individual land parcel, as Articles 80 and 81 of MATR/BPN Regulation 18/2021 allow an HGU to be re-granted or not re-granted only with respect to part of the overall area.
Conclusion
The expiration of an HGU cannot be understood merely as the expiration of the validity period of the land certificate. A company must first assess whether an extension or renewal remains available and, after one complete HGU cycle has expired, whether the HGU will be re-granted to the former holder.
If the HGU is not re-granted, the next issue concerns the legal status of assets located on the relevant land. For an HGU over State Land, Article 81 of MATR/BPN Regulation 18/2021 provides that buildings, objects, and crops are directly controlled by the State. For an HGU over HPL land, their status follows the land utilization agreement with the HPL holder.
Accordingly, the greater the company’s investment in HGU land, the more important it is to undertake proper planning before the term of the right expires. Reviewing the status of the HGU, ensuring compliance with the applicable requirements, and conducting an inventory of assets are important measures to mitigate legal risks and maintain business continuity.
MNL Law Firm is ready to assist business actors and companies in understanding and anticipating various legal issues relating to HGU and company assets. For further inquiries or legal services relating to land matters, HGU, and company asset protection, MNL Law Firm is ready to provide legal assistance and solutions tailored to your needs.
Reference:
- Law Number 5 of 1960 concerning Basic Agrarian Principles (UUPA).
- Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation as a Law.
- Government Regulation Number 18 of 2021 concerning Management Rights, Land Rights, Strata Titles, and Land Registration.
- Regulation of the Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Number 18 of 2021 concerning Procedures for the Determination of Management Rights and Land Rights.
Author: Claudia Larisa Sihaloho
Editor: Robby Simamora, S.H.,M.H.